The much-vaunted Republican pledge not to raise any taxes is crumbling. Today 34 Senate Republicans voted to end the special tax breaks for ethanol.
According to no-tax-increase purists like Grover Norquist, this is tantamount to a tax increase.
The truth is, Republicans are divided between those who want to bring down the budget deficit and those who want to shrink government. Ending a special tax subsidy helps reduce the deficit but doesn't necessarily shrink government. That's why Norquist and his followers have insisted any such tax increase -- including even the closing of tax loopholes -- be directly linked to a corresponding tax cut.
In order to save face on today's vote, Norquist says renegade Republicans will still be considered to have adhered to the pledge if they vote in favor of an amendment offered by Senator Jim DeMint to eliminate the estate tax. Talk about grasping at straws. DeMint's amendment isn't even up for a vote.
In short, the no-tax pledge is evaporating in the fresh air of reality.
What are anti-tax Republicans to do now?
For one, continue to distort the arguments of those who believe corporations and the rich should pay more taxes.
For example, in the lead op-ed piece in today's Wall Street Journal, Cato Institute fellow Alan Reynolds claims a higher marginal tax on the super rich will bring in less revenue.
Reynolds uses my tax proposal from last February as his red herring. "Memo to Robert Reich," he declares, "The income tax brought in less revenue when the highest rate was 70 percent to 91 percent [between 1950 and 1980] than it did when the highest rate was 28 percent."
Reynolds bends the facts to make his case, picking and choosing among years.
In truth, the most important variable explaining the rise and fall of tax revenues as percent of GDP has been the business cycle, not the effective tax rate. In periods when the economy is growing briskly, tax revenues have risen as a percent of GDP, regardless of effective rates; in downturns, revenues have fallen.
Reynolds also distorts my proposal, implying that the bracket on which I call for a 70 percent tax is the same as in today's tax code. Wrong. My proposed 70 percent rate would apply only to incomes over $15 million.
$15 million, Alan!
Under my proposal, incomes between $5 million and $15 million would be subjected to a 60 percent rate, and incomes between $500,000 and $5 million to a 50 percent rate.
Importantly, my proposal calls for a substantial rate reduction for families with incomes under $100,000. (Conveniently, Reynolds fails to mention this.)
Reynolds entirely ignores my central argument, which is that rather than depress economic growth, higher taxes on the rich correlate with higher growth. During almost three decades spanning 1951 to 1980, when the top rate was between 70 percent and 91 percent, average annual growth in the American economy was 3.7 percent.
Between 1983 and the start of the Great Recession, when the top rate dropped to between 35 percent and 39 percent, average growth was 3 percent.
How to explain this? Easy.
Since the early 1980s, a larger and larger share of total income has gone to the top (the richest 1 percent of Americans got 10 percent of total income in 1980, and get over 20 percent now). That's left the vast middle class with insufficient purchasing power to boost the economy - without going deep into debt.
Lower tax rates on the rich -- including lower capital gains rates -- have exacerbated this regressive trend.
Finally, having misread the facts, distorted my proposal, and ignored my argument, Reynolds fails to rebut my conclusion that raising middle class purchasing power by lowering their tax rates while raising the rates at the top will help spur growth, to the benefit of all. Top earners will do better with a smaller share of a more rapidly-growing economy a larger share of a slower-growing one.
If I were a cynic, I'd say the Republican right is showing signs of desperation.
Robert Reich is the author of Aftershock: The Next Economy and America's Future, now in bookstores. This post originally appeared at RobertReich.org.
Follow Robert Reich on Twitter: www.twitter.com/RBReich
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Until we hit the streets nothing is going to change. And the changes we want will still be hard to accomplish. We need to remove all corporate influence from our elections and \=we need paper ballot elections back.
It's going to continue to get uglier and uglier because corporate interests far outstrip the interests of Americans in this country right now;
And unfortunately, I believe it's going to have to get much worse before the majority of the Americans realizes that we have to actively engage in order to bring real change.
*
Saying that corporate spending on speech regarding the election is influencing elections, ignores the fact that other organizations do the same (unions, special interest lobbies, etc.). Corporations are just an association of people (the stockholders) like other groups (unions, Jews, etc.). Should groups of people be prohibited from speaking on an election? I guess you're against free speech. That's hardly in the liberal tradition.
Instead of criticizing corporations, perhaps you should criticize politicians who hand out government favors at our expense. If politicians didn't do this, then corporations wouldn't be speaking out for favors, or speaking out against favors for their competitors.
He was speaking of conservative views, not his own.
And you're right - it does not make sense. Like most things rabid conservatives say.
It seems to me that George Washington was right, government that governs least, governs best. Increasing government spending, just increases the burden of government on all of us. And the reality is, that we don't have enough wealth to pay for everything government has promised. Perhaps you'll give government everything you have, so government can give you what you need - that's fine with me. Just don't ask me to participate.
http://front.moveon.org/scribbling-sharpie-illustrates-the-truth-about-our-economy/?id=28091-19029633-I3VnqPx
Great points...thank you so much.
heck for ending the subsidy for ethanol. How did they get 34 Senators to do this? I
don't agree with Grassley much, but I did this time. The moderate Republicans need to quit voting with those Tea Party candidates.
Most people do not know this and it shocks their sense of the American Dream. They fantasize that they will make a gazillion dollars and then believe that the government will confiscate most of it at horribly high rates starting from dollar one.
Since Obie is clearly 100% a Wall Streeter, he will do nothing to present a coherent explanation. Geithner and his Goldman Sachs buddies won't let him. Does anyone really think Goolsbee left to keep tenure? Get real.
Goolsbee left because left because Geithner and Obama are drilling massive holes in the bottom of the Titanic in order to keep it afloat.
*We are not taking about taking 50% of all the billionaires' yearly incomes. The rates which we THROW around are the rates which people pay over a certain amount. For example, the high rates would not apply to the first $1M, only to the incremental income over $1M, and extra high rates would apply only to the incremental income over $10M.*
The no tax increase mania has the sole purpose to decimate government while making businesses free from regulation. That's why the repeal of Glass-Steagall and the destruction of consumer protection statutes are key pillars in the attack on Government.
"Insanity is doing the same thing over and over and expecting a different result."
In our own history, improvements in over all wealth including the super rich correlate perfectly with higher taxation rates. Around the world, the same thing. Small taxation of the super rich correlates perfectly with huge fractions of the population in dismal poverty.
The claims of Reaganomics are all wrong -- Reaganomics is a recipe for increasing poverty, not increased wealth.
End of story.
The purpose behind the no taxes mania is to destroy the government by making it so small it cannot regulate international corporations. That is why the same people want to destroy medicare and Social Security -- so that the Middle Class and the poor will abandon the government.
You are right about the rich themselves would benefit from paying higher taxes. The rich do not invest in businesses that have no prospects of more customers. Thus, giving them tax breaks actually takes money away from consumers, but if we taxed the rich more and give equal tax breaks to the middle class and poor, then businesses would have hired more people and would have bought more equipment in order to produce more goods. The business owners, i.e. the rich, would have made more money as the economy got better.
Recessions, however, tend to concentrate more and more wealth into the hands of the extremely wealthy -- the top 1%. Remember when we worried about the top 5%? Well, the recession has mostly left behind 80% of the top 5%, leaving the power in the hands of the top 1%. Yes, the rich and the middle class and the poor are all economic ignoramuses.